In the third quarter of 2018, the Eurozone economy grew by 0.2 percent compared to the previous quarter.
October PMI indicators showed a sharper drop than expected, indicating that growth in Q4 will probably remain low.

French President Macron struggles with low approval ratings and decreasing economic confidence, despite a strong parliamentary mandate for reform and upward economic potential. The 2019 budget proposal reduces the size of government, modest improvements in public finances and stimulus for private demand.

The ECB has little possibilities to stabilize the economy in case of a new recession. Therefore it is important that Eurozone countries have fiscal policy space to fill the gap. Unfortunately the Eurozone countries do not seem to have enough buffers.

In many Eurozone countries, private sector debt has decreased in recent years and so has the vulnerability of the private sector to higher interest rates. Yet in many countries debt remains high and in several countries vulnerabilities are still present.

Despite deleveraging in recent years, private sector debt remains high in many Eurozone countries. The private sector in Cyprus, Greece, Ireland, Portugal, Spain, Finland and Luxembourg is most vulnerable to higher interest rates.

The Eurozone economy finished 2017 at a high note, with annual growth coming in at 2.5%, the highest figure since 2011. The outlook for 2018 looks good as well, likely prompting us to upwardly revise our forecasts soon.

Eurozone (core) inflation is likely to stay low for longer. This is driven by lower wage growth for an extended period of time and give cyclical and structural explanations. This means the ECB is unlikely to raise interest rates before 2019.